The most valuable Africa-specific gold developer

One of the few stand-alone survivors in the West African gold space Semafo, is attracting attention as it's ten-bagger Mana discovery lights up African gold.

Author: Barry Sergeant
Posted: Wednesday , 30 Mar 2011

JOHANNESBURG -

A few months back, transnational gold miner Kinross acquired Red Back for USD 7.1bn, for its gold mining interests in Ghana and Mauritania. The shareholder resolution for the deal was approved by 70% of Kinross's shareholders. Roughly 99% of Red Back's shareholders approved the deal, strongly indicating the high-powered nature of the game at play.

The deal once again threw a light on the considerable bounty of gold assets rising, many recycled, in Africa. At the same time, the deal showed up just how keen bigger gold names are to further burnish internal inventories, and also the kind of prices that are voluntarily disgorged. If all is well that ends well, Kinross's stock price has underperformed for months, possibly as a target of some kind of obscure cerebral punishment.

Meanwhile, the spotlight remains on African gold assets; demand for information on broad and specific stories expands apace. At least 100 listed companies are now involved, exclusively or otherwise, in gold activity on the continent. In a report initiating coverage, RBC Capital Markets has taken a very close look at Canada-listed Semafo, which already ranks as an enviable "ten bagger".

Semafo's success has been a long time in the making; it was one of the early starters - and ranks as one of the few stand-alone survivors - in West Africa, more than 15 years ago. Until recently, Semafo's history was lackluster, but stamina and resolve have proved handy qualities.

In just three years, Semafo's stock price has expanded more than ten times. Most of this has come on the back of the commencement of production in 2008 at the Mana gold mine in Burkina Faso. Mana, according to RBCCM, could amount to something more akin to a province than a mine.

RBCCM anticipates that while production from Mana could amount to around 180,000 ounces of gold in 2011, at an average cash cost of USD 550/oz, group production could grow to more than half a million ounces during 2015, with around 500,000 ounces, alone, coming from Mana, in which Semafo holds 90%. This would be a special class: few stand-alone gold mines can produce that kind of output.

Mana's output would be augmented by production from two other Semafo mines, one in Niger and the other in Guinea. Of these jurisdictions, Burkina Faso has historically been the most at peace with itself. With a capital named Ouagadougou, where there may be more bicycles than people, how could it be otherwise?

Mana is found about 200 kilometers to the west of the capital. The mine there has been built at relatively modest cost, and Semafo's standing debt is modest seen in the context of cash generation by Mana. RBCCM believes there is a clear expectation from the market that the current programme at Mana should increase the reserve at the mine to at least 3.5m ounces from 2.16m at present.

RBCCM is clear in its view: "the existing discoveries at Mana represent the tip of the iceberg within the context of the whole 115 km mineralised trend that includes the highly prospective northern licence areas, Saoura and Massala". Semafo holds nearly two thousand square kilometers of exploration licences in the region.

Semafo has set an exploration budget of USD 30m for Mana in 2011, for a formidable 69,000 meters of diamond drilling (including 6,000 meters over deep targets), 130,000 meters of reverse-circulation drilling (including 57,000 meters over the Kona and Fofina-Fobiri areas), and 50,000 meters of air core drilling. The company is also scheduled to complete a 302 square kilometer HELITEM Lite electromagnetic survey over the central portion of the licence area.

The expectations are clearly reflected in Semafo's market value, currently around USD 2.5bn, the highest of any gold explorer or developer on the African continent. Investors, and no doubt the odd speculator, have long marked the stock out as a potential takeover target.